counting chickens: should disgorgement be harder for false advertising than for TM?

Certified Neutraceuticals Inc. v. Clorox Co., 2021 WL
4460806, No. 18-cv-0744 W (KSC) (S.D. Cal. Sept. 29, 2021)

The Clorox defendants sell dietary supplements using the raw
materials provided by Certified’s competitor, Avicenna. Certified alleged
Lanham Act false advertising based on allegations that the Clorox defendants
and Avicenna engaged in a scheme to falsely advertise the source of chicken
collagen used in dietary supplements sold to retail consumers. Clorox allegedly
labeled their Collagen2 Joint Complex product as containing “Chicken Sternum
Collagen Type II,” but the collagen in the product is allegedly not pure
sternal collagen, but rather collagen produced by Avicenna using chicken
carcasses of inferior quality which are much more inexpensive to produce. (I am
left wondering desperately what makes chicken sternal collagen better than
other chicken collagen; Google suggests that it is the most human-collagen-like
part of the chicken, at least according to purveyors of same.)

In a prior case between Avicenna and Certified, a different
judge granted summary judgment in Avicenna’s favor on Certified’s Lanham Act
claim because “Certified brought its claims with unclean hands by engaging in
the same improper conduct for which it faulted Avicenna—publishing false
statements about a product being ‘patented’ without a patent.” But that didn’t
relate to the subject matter of this claim.

Literal falsity: The evidence showed that CJC does in fact
contain sternal chicken collagen; Avicenna claims that its process produces 90
percent sternum cartilage. “Independent testing of Avicenna’s collagen backs
this up, showing batches purchased from Avicenna contained sternal chicken
collagen in substantially similar amounts to Certified’s product. It is
therefore literally true for the Clorox Defendants and Avicenna to advertise
their products as containing sternal chicken collagen.” But Certified argued
that defendants were advertising their producst as 100% sternal chicken
cartilage. Avicenna has advertised its product as “Avian (Chicken) Sternum
Cartilage” and “Chicken (Avian) Full Frame Sternum Cartilage.” There was a
triable issue on the first product name, which was a single ingredient: it
could necessarily imply that 100% of the product was that ingredient. “By
advertising its purportedly single-ingredient product as chicken sternal
collagen, Avicenna appears to be representing that the entire product is
chicken sternal collagen.” However, the second name wasn’t literally false
because it was “an accurate depiction of Avicenna’s manufacturing process:
deriving chicken sternum collagen from the full frame of a chicken.”

Also, the Clorox defendants did not advertise their product
as comprised of only a single ingredient. They advertised that CJC contains
2,400 mg of sternal collagen among other ingredients. There was no actual
evidence that CJC did not in fact contain 2,400 mg of sternal chicken collagen.

Misleadingness: There was no evidence of likely consumer
deception. Certified’s only survey was “not representative of a population that
actually consumes the product,” but instead surveyed rheumatologists. There was
no evidence that rheumatologists actually influence buyers of the product. And
the rheumatologists reviewed the supplement label on Clorox’s product, not
Avicenna’s. “Avicenna has produced declarations of its customers stating
Avicenna never represented its product as 100% sternum and that customers
understood that it was not.”

Injury: Certified alleged monetary damages in the form of
lost customers, reduced profits, additional advertising costs, and lost market
share. It offered a list of lost customers and evidence that its profits declined
and Advertising and Promotion expenses increased over disputed time periods. However,
the list was overstated (it was just a list of past customers), and five customers
Certified purported to have lost to Avicenna testified that they did not
purchase Avicenna’s product based on the alleged misrepresentation. Certified
argued that it was nonetheless entitled to damages on an unjust enrichment
theory. The court disagreed because the advertising at issue wasn’t
comparative, and so proof of past injury or causation was required. Certified’s
evidence showed sales increased over the relevant period, though profits
decreased because of a large increase in the cost of sales. “[I]t is not
reasonable for the Court to assume the significant unaccounted for increase in
the cost of sales, which could be attributed to the cost of goods sold among
other things, is a direct result of Defendants’ product labeling.” Thus,
Certified failed to show damages.

What about disgorgement? “15 U.S.C. § 1117(a) and Lindy
[the key 9th Circuit precedent] both address damages in false
comparative advertising cases, where a defendant violates ‘any right of the
registrant of a mark registered in the Patent and Trademark Office.’” As a
reminder, §1117(a) specifically also says “a violation under section 1125(a)”
immediately after the quoted words. Romag should therefore be as good
law for false advertising under §1125(a)(1)(B) as for trademark, but I’m not
super surprised that courts are still intoning “trademark” as if that were
somehow a sufficient distinction.

The court granted summary judgment on damages, but didn’t
preclude injunctive relief: “[A] competitor need not prove injury when suing to
enjoin conduct that violates section 43(a).” [Is this still true after TransUnion?]

from Blogger

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